When risk and insurance benefits are paid out

With most insurance policies you can expect the same kind of processes between them. A regular periodical payment, or insurance premium, is paid to the insurance provider. And when you become eligible for a claim, you may receive some or all of the accumulated lump sum from the financial service provider. The particulars of what your insurance covers and the conditions for which you are eligible for a claim will vary between policies – depending on what was agreed upon. But for explanatory purposes, here is a brief guide into how risk insurance benefits are paid out.

Income Protection

Typically with income protection insurance, you would pay a monthly fee to an insurance provider to take on the risk. This burden is where you may one day not being able to earn income and pay your living expenses, such as in the event of an accident or involuntary job loss.

Life Insurance

When you subscribe to life insurance, claims are only accessible when you pass away and your financial dependants receive the benefits. The aim of life insurance is to assist your dependants with the loss of your life and help meet financial obligations that you were paying for. Benefits can be paid out as a lump sum or broken up into ongoing annual payments for an agreed number of years.

Total and Permanent Disability (TPD) Insurance

Benefits paid out from TPD insurance are only accessible when you become totally and permanently disabled and will never work again in your own occupation. Generally, a lump sum is paid out to help cover incurring medical expenses, home modifications, loans and education fees for a certain period of time. TPD cover can be paid from you superannuation fund as a tax-effective way instead of holding TPD insurance in your own name.

Trauma Insurance

Trauma insurance is similar to TPD insurance, except there is an expectation that you will return to work. It covers most major illnesses such as cancer or the event of a stroke. Trauma Insurance cover is more extensive than your usual health insurance policy while filling in gaps of income protection insurance and TPS insurance.

Business Insurance

A particular type of business insurance that you can personally hold is key person insurance. Like life insurance, key person insurance is paid out in the event of your passing. But these benefits are paid out to your business. However, to be considered a key person, you will need to prove that your presence is an essential part to the performance and profitability of the business. This may mean that you hold an important knowledge base, personal network and recollection of business history, transactions and processes. The lump sum benefit paid out to your business aims to help your business cope with hiring interim staff and significant recruitment costs to hiring senior personnel in your place.

These variations in benefit payout conditions are also important elements to consider when choosing insurance policies. As much as there are financial components to each policy, it is crucial that you consider your current and future lifestyle and goals as well. Seeking guidance from a trusted financial planner that understands you on a personal level will also help you make informed and appropriate decisions based on your individual situation.